It continues to be a tumultuous and challenging year. The endless deluge of sexual misconduct allegations, the trauma and personal risk faced by survivors. If you subscribe to the philosophy that things have to get worse before they get better, there’s some solace that maybe, hopefully, we’re reaching the bottom, though it sure feels like we have a long way to go.
There seems to be one glimmer of silver lining: a growing awareness of the inequities and abused power dynamics in so many professional, social, and cultural circles. What’s interesting is how this growing awareness has exposed the “As a father of daughters” syndrome. You’ve seen it: a man speaks up against sexual misconduct by saying he can’t keep quiet as a father of daughters. The implication is that he wouldn’t have spoken up…if he didn’t have daughters.
Now, this is a totally natural human reaction. I myself have been embarrassed by how long it’s taken me to pay attention to disability rights — to name just one issue — only once they’ve affected me or people close to me. But it does demonstrate that our empathy as humans can be very limited, and our frame of reference for any problem can be very short-term.
And it should be a reminder to investors that although we might each be best positioned to make decisions based on our lived-experience, when that lived-experience is narrow, we’re probably missing big opportunities. As Morgan Housel recently wrote, “Seven billion people on this planet share a flaw: They’re out of touch with almost everyone else.”
We know it’s hard to think beyond our narrow frame of reference — beyond our own networks, beyond our own backyards, beyond what we can see in the short-term. As an investor focused on undervalued opportunities — but living in San Francisco, a market that can be an echo-chamber and is home to many overvalued companies — I think about this a lot. Many of the world’s biggest problems — how to feed a planet with eight billion people on it, how to address vast economic inequality — require awareness of things that affect people outside our personal networks, and require a long-term view.
There is an opportunity cost to thinking about these things, because it takes us away from thinking about our own most-immediate-need, highest-probability-of-immediate return prospects. But the longer term costs — of the working world being filled with threats of sexual harassment by the time you have a daughter that needs to enter it, of the cost of medical care for a disabled child becoming prohibitively expensive by the time you have one that needs it, of an environment unable to provide clean water and breathable air for you and your future community— are so much higher.
We may know it’s the “right” thing to do to stretch our brains to acquire this awareness and time horizon, but it’s often too challenging in practice. Most everyone who has had access to financial education understands the power of compounding and knows that the earlier you start investing and saving, the bigger the gains.
And yet as my friend, Hal Hershfield, an assistant professor at UCLA, has found, we have difficulty even imagining our future selves (You! Right now, reading this! You are the person who will one day be in the future!) in a compelling enough way to incentivize behavior we know we should adopt. Hal’s research has shown that it takes viewing an image of yourself aged a few decades to get materially different commitment of funds for retirement.
If it’s hard to think long-term even when considering one’s own self-interest, how will we ever make a dent in larger-scale problems — like poverty and access to healthcare — that affect those beyond us?
Startups like Owlized are taking Hal’s idea of aging an avatar of your face, and mapping it to the natural environment: showing you what your community will look like in the future, subject to environmental changes. If you’re standing on a shoreline and can actually see through virtual reality that it’s disappeared, the incentive to act in the short-term — to change behavior, to invest in sustainable solutions — might suddenly feel more urgent to achieve a long-term outcome.
When it comes to investing with impact, what if we’ve been thinking about incentives backwards? What if we should be investing based on what we’re scared to lose rather than just what we have to gain?
I’ve been having lots of conversations about incentives lately with portfolio companies and other investors. It’s not just our default state of mind we need to shift in order to think long term — it’s also our operating structures. As one example, there’s a well-established debate around the traditional venture capital structure: 10 year funds incentivize investment in things that can get acquired in five years, which leads to suboptimal progress towards the longer-term problems we’re trying to solve for people and the planet.
If you’re an investor struggling to move your mindset from short-term to long-term, envision your career a few decades from now. When you talk about your track record, what problems will you have solved? What problems did you know about — but chose not to solve? And if you had a hypothetical daughter holding you accountable for her future, would you make the same decisions today?
Walter Mischel, the famed psychologist who administered the Marshmallow Experiment that tested the discipline and resolve of children who could gain larger rewards if they delayed gratification, struggled himself with self-control. And then he figured out the visual and emotional trigger he needed to overcome his immediate desire to smoke cigarettes. Humans are more averse to losses than we are eager for gains. Solidifying a stark enough picture of his future self in a grim state of health trumped the short-term pleasure of a cigarette — but took a lot of work.
We may generally perform poorly at thinking beyond ourselves until we have a trigger to empathize — whether it’s with our future selves, our future loved ones, or our future environment. But the good news is that we can get better with practice. What if, the same way that many investors keep an “anti-portfolio” of deals that went on to be successful after they passed on the opportunity to invest in them, we started keeping an “anti-portfolio” of companies that are addressing social or environmental threats — and had to ask ourselves whether we can live with a future without their solutions in it? Hopefully those two lists converge, and the fomo that many investors experience now by missing the latest technology trend, shifts to a fear of losing a shot at our best future.